Month: February 2018

3PL or Third-party logistics signifies companies that offer a comprehensive selection of outsourced benefits to industries, inclusive of warehousing and transportation services. While the scope of 3PL companies has evolved with time, there are several industries that make selections based on the size and weight of the concerned shipment. Moreover, the dimensions of shipments determine the transportation and warehousing flexibilities as these are still the basics metrics against which a 3PL company is evaluated.

Evaluating the Transportation Requirements based on Shipment Size and Weight

A third party logistics company outsources transportation based on the carriers and fleet consolidation requirements. With the likes of freight claims, freight auditing and cargo insurance being considered important by the industries, it is the responsibility of 3PL companies to segregate services according to the weight and size of the shipment. It is important to understand that every 3PL service provider comes across with an operational profile, depending upon the organizational requirements. However, there are two specific types of shipping practices which eventually determine the transportation strategies used by the concerned 3PL company.

The LTL Shipping Technique

Based on the size and weight of the concerned freight, industries often select a suitable third party logistics company. For shipping smaller and lighter commodities, LTL or rather Less that Truckload concept is followed. The underlining principle of LTL shipping is that the goods are way too large to be sent across as separate parcels but also way too small to fit in as the entire truckload. Therefore, smaller shipments need to be transported via 3PL companies that offer LTL services as some service providers often charge for the entire container even if the shipment fills less than half of the volume. Apart from hiring LTL-centric 3PL companies, industries can also look for service providers that offer discounts on LTL shipments provided they are incapable of filling up the allotted spaces. In cases like these, the 3PL companies fit in some other goods, likely to be off-loaded during the course.

When it comes to analyzing the LTL shipping process, the carriers collect commodities from shippers before consolidating the same across trailers and concerned trucks. While line-hauling is an essential part of the process, there are times when the freight gets sorted mid-way and consolidation happens at certain local destinations. Drivers usually defer unloading by a day and make new pickups when the carriers are empty.

Freight density is one metric which determines the deployment of a 3PL vendor. Certain companies offering LTL shipping services predefine rates according to shipment density. Classifying freights according to the density requires companies to calculate the shipment and pallet weight and divide the same according to the volume. In preferred cases, higher product density results in lower shipment costs.

Apart from the product density, distance is also a major factor that determines the shipping rates and even the nature of the hired 3PL companies. In addition to that, FAK or Freight All Kinds service is something that LTL companies specialize in. Lastly, 3PL vendors offering LTL shipping services usually swear by the concept of ‘Minimums’. This aspect determines the minimum shipment cost for a particular company below which a service provider would reject the proposal. In most cases, carriers offering LTL shipping facilities hike the minimum shipping rate by 2 to 3 percent, annually.

FTL Shipping: Shipping Homogeneous Cargo

Probably the simplest approach to assessing carrier shipping, FTL or Full Truck Load technique requires an organization to hire the entire trailer or container for transporting the freight. Moreover, the FTL shipment is never handled along the route and doesn’t involve transfers, sorting and even repackages. These shipments are handled by drivers which have a fixed timeline of work. In addition to that, FTL packages usually move at a fixed rate.

When it comes to analyzing the FTL shipping techniques, the concerned freight is first loaded onto specific crates and then delivered across destinations.

Inference

When it comes to assessing the services offered by third-party logistics, LTL and FTL shipping techniques come forth as the most comprehensive ones. Moreover, industries prefer brainstorming before zeroing in on the perfect 3PL company based on the dimensions and weight of the freight. While the weight is probably the second most important factor, size or rather the density of the commodity determines the kind of carrier required to ship the same.

In today’s economy, businesses need to be efficient in every aspect of its operations to gain an edge over their competitors. What happens if the company is not able to focus all its energy on its core competencies? The answer is stunted growth and probably in due time, obsolescence. As per the Inbound Logistics’ 12th annual 3PL market research report, in the US, consumption has been inconsistent and volatile even as the manufacturing industry rebound from the recession. Stores were slow to clear their inventories and replenish. As a result, the stock and corresponding stock-to-sales ratios moved upward while cargo volumes fell behind. There have also been a lot of changes on the regulatory front too.

In such volatile economic conditions, 3PL(Third Party Logistics) companies exhibit a greater influence, helping businesses adapt to these changes. From warehousing & distribution to transportation; from pick and pack solutions to complete co-packing solutions, 3PLs offer a complete package. They have been serving myriad of industries including manufacturing (92%), retail (84%), and wholesale (76%). E-Commerce (65%) is a fast-growing niche as fulfillment complexity, and customer service expectations continue to grow while borders are being transcended.

Here are 5 reasons why businesses should outsource their non-core functions to 3PLs:

Focus on Core Competencies:

By zeroing in on a fulfillment partner and agreeing with them on a performance plan with mutually defined metrics that determine the relationship’s success, businesses can set aside their worries and concerns about the non-core functions. This enables them to focus more on their core competency. They would be able to save capital, as an investment in logistics assets, such as warehouse space, information networks, transportation, and staff, usually needs large and lump sum costs. When these functions are outsourced to 3PLs, it frees up a lot of capital which could be invested in bettering the businesses’ core competencies. Furthermore, the 3PL providers, in turn, can spread the risks by outsourcing to sub-contractors.

Rapid Technological Changes:

In 2017, 66 percent of 3PL survey respondents of the Inbound Logistics’ market survey cited technology investment as their top priority.

With demand behavior changing, how businesses deliver products and services to market coupled with the ever-changing demographics and digital disruptions at the point of sale, industries are being constantly challenged.

From in-house, patented data analytics engines to private-labeled TMS systems hosted in the cloud or on-premise, or managed as a service, 3PLs are continuously upgrading in order to stay in the competition. With 3PLs offering shopping cart integrations, smart order fulfillment, integration with the best in class shipping companies like FedEx, UPS etc., E-commerce Fulfilment has become speedy, accurate and economic.

An excellent example is the automotive industry where big names like GM, Ford, and Toyota are associating with technology giants like Google and tech entrepreneurs like Tesla and Uber to reshape the way people and goods move.

Global Services and developing evolving markets:

The political volatility seen across the world is impacting today’s logistics outsourcing paradigm. Protectionism is the buzz word which threatens the age-old perceptions of globalization as supply chains become more demand sensitive, risk-averse, environment conscious—and of course, local. The manufacturers and retailers are also continuously scanning for new markets worldwide to sell into and distribute through at minimal costs.

3PL providers constantly enhance their resource networks via technology and partnerships to ensure efficiency is maximised, to mitigate risks and execute contingency plans when exceptions inevitably arise. Their vast resource networks spread across the globe has advantages over in-house supply chains making it easier and cheaper for businesses to enter evolving markets. They are able to offer volume discounts which in turn reduce overhead for the businesses and assure fast and proficient service; you get access to resources which would otherwise be out of bounds or very expensive.

Saves Time and Money:

With the utilization of a 3PL, you have the ability to save money by eliminating the need to invest in physical distribution centers, technology, transportation, and staff required to execute the logistics process which involves financial risks. You also do not need to worry and spend time on the nitty-gritty of paperwork, audits, staffing and their trainings as well as optimization in these operations, for this is an area of expertise for 3PLs. This helps the business to build a worldwide logistics network where the risk is lower and the returns higher.

Non-sales related call activities; receiving, checking and managing your inventories; pick and pack, co-packing, order processing, and fulfilment activities; delivery and tracking are some of the activities that are expertly handled by established 3PL companies, thereby, freeing up your time and money to focus on product development/sourcing, marketing, and increasing sales.

Scalability and Flexibility:

The “Amazon effect” has only amplified the importance of speed and agility in today’s marketplace. The stress of high and low seasons, scaling space, labor and transportation as per the inventory requirements could affect the health of businesses.

3PLs are masters at coping with change and have the required resources at hand to make the necessary alterations to every scenario thereby ensuring efficient order fulfillment. If a business needs additional space to scale up their operations, a 3PL provider is a just call away and would be able to take care of it in a jiffy making the businesses more flexible.

3PLs have the ability to improve almost every aspect of the supply chain, ensuring that your needs are met as quickly as possible in the most competent and cost-effective way. They can help maximize margins, reduce wait times, and gain more satisfied customers, thereby, creating robust, successful businesses.

A functional reverse logistics approach works perfectly when it comes to enhancing the user experience and even reducing overall inventory costs. Reverse logistics, in the truest possible sense, signifies a strategy that remains active after the point-of-sale and aims at recapturing the product value. This approach also ensures that the returned product is disposed of perfectly following the process of remanufacturing, replacement and refurbishment. Basically, reverse logistics makes the best use of excess inventory and scrap followed by efficient recycling, equipment distortion and asset recovery programs.

Why Reverse Logistics is the New Fad?

Previously, companies didn’t emphasize a lot on reverse logistics but with the advent of law enforcement and consumer awareness, certain commodities had to be disposed of in an efficient manner. This is why reverse logistics came to the fore with some companies even acquiring ISO certifications for validating their recycling process.

When it comes to the nooks and crannies of reverse logistics, the concerned activities entirely depend on how the products are actually dealt with. If a product is to be sent back, the basic reverse logistics approaches include landfill, recycle, recondition, remanufacture and refurbish. In case of a packaging material, companies prefer reusing and reclaiming the materials as well. Moreover, reusing the products and packaging materials allows a firm to reduce overhead costs. Lastly, if the product or packaging condition doesn’t allow recycling, scraping the same is the next best option.

Are Organizations up for the Implementations?

Reverse logistics comes across as a powerful strategic weapon for enterprises but there are only a few firms that have actually implemented the same, in the long run. However, the current industrial requirements are such that firms need to prepare themselves against inclement situations and this is where reverse logistics can help. That said, efficient reverse logistics services can help an organization establish credibility by offering better tamper-proof packaging and other essential perks.

Moreover, in this era of cut-throat competition, it becomes important for the companies to inculcate better logistical habits. Therefore, reverse logistics is one approach that offers a competitive advantage to some industries by helping them reach higher levels of customer satisfaction. According to the reverse logistics approach, any customer that doesn’t like the product can return the same by filling up pre-printed or even online forms. Be it quick replacement of defective products or addressing issues related to fit or compatibility, reverse logistics helps companies set exceptional examples of user satisfaction without putting a lot of stress on the profitability.

Streamlining Reverse Logistics

Following a reverse logistics plan alone isn’t sufficient for improving the aspects of profit and customer satisfaction. Industries which are willing to incorporate this approach towards logistics must be prepared for streamlining the same. This strategy involves pairing up the reverse logistics approach with the likes of tracking and proper visibility. In addition to proper visibility, companies must also concentrate on lowering the return rates. At present, companies and retailers following the policy of returns are losing out on at least 10 percent of the operational profits.

Fitting in the Same with Supply Chain Management

Firstly, an efficient reverse logistics plan helps industries build exceptional brand loyalty. This is why it must be an inseparable part of the supply chain management provided the returns are initiated seamlessly enough.

The first approach towards pairing a supply chain management process with reverse logistics inputs would involve lowering down the higher return costs. Based on reports released by the Entrepreneur, one order amidst three dispatches needs to be returned. Moreover, with Omnichannel customers looking for improved order returning flexibility, it becomes all the more important to facilitate returns via multiple channels.

The entire supply chain has several segregations when it comes to the product conditions. While the returns for unopened items are processed immediately, others go through the liquidators, distribution centers and even resellers, before finding the secondary buyer.

The Basics of a Successful Strategy

When it comes to implementing a functional reverse logistics strategy, it’s all about initiating product expeditions at a faster rate. That said, companies can also hire efficient 3PL service providers for designing a successful policy towards handling, collecting and distributing the items for returns. Apart from that, there should be specific warehouses for storing returned products. In addition to the infrastructural strategies, there must be efficient return policies in place; clubbed with a powerful financial tracking layout.

Having a dedicated channel for product returns is also important as it takes out the defective items from the supply chain and assigns specific commodities to specific centers. For a reverse logistics strategy to succeed, industries must be able to analyze and capture data perfectly. This step-pronged approach allows retailers to predict the types and volumes of returned products while helping them amplify their inventory management process.

The entire concept of inventory accounting offers an insight into the inventory assets of an organization. Therefore, every business that concerns warehousing, logistics and storage need to abide by the guidelines of inventory accounting. While there are many accounting strategies associated with inventory management, it all comes down to proper record keeping and inventory valuation. Needless to say, inventory accounting, clubbed with inventory valuation, directly impacts industrial taxation and profits.

Inventory Accounting: Definition

It is important to evaluate inventory as an entrepreneurial asset before assigning valuation and accounting strategies to the same. However, in order to validate a portion of inventory as an asset, it is important to assign costs to the same. Be it the raw materials or an existing conglomerate of finished products; any kind of inventory is considered an asset, provided it’s valuated and accounted, accordingly. Placing a value on the inventory is termed as inventory accounting which directly impacts the overall costs of products.

Inventory Accounting: Modus Operandi

Although, inventory accounting is based on tedious calculations, the basic approach towards leveraging its functionality involves using the same for calculating the ending inventory costs. The ending costs when subtracted from the beginning inventory costs and purchases clearly reveal the actual costs of the products during a predefined period. Therefore, inventory accounting is a great business tool for retailers, wholesalers and manufacturers.

Businesses often face inventory assigning challenges as similar goods usually carry different price tags at different points in time. Therefore, it becomes difficult for businesses to have a fixed algorithm when it comes to calculating the ending inventory costs. Needless to say, every enterprise should look to embrace a particular approach towards inventory accounting during the initial days which can later be changed, according to the requirements. This brings us to the fact that there are multiple approaches to inventory accounting.

Inventory Accounting Guidelines

The process of inventory valuation requires a business to establish a sales-specific operating account. The next approach or rather guideline involves establishing a tracking system for the concerned inventory and then following it up by a physical control. Purchasing, receiving and recording product transactions are the subsequent inventory accounting processes which are followed by establishing a physical warehouse for inventory management. Lastly, inventory accounting or rather valuation requires businesses to adjust the ledger balances for fixing the product price points.

Different Types of Inventory Accounting

Accountants, specific to industries, should predefine the inventory accounting approaches, before moving ahead with the process of inventory management and logistics. At present, the existing strategies include the First in First Out process, Last in First Out process, specific inventory identification method and lastly, the weighted average method.

1. FIFO— This inventory accounting method works when the accountants realize that the first item entering the long list of inventories is the first one to be sold. The FIFO accounting technique, therefore, aligns itself with supply chain and lowers the overall cost of products. With the oldest lot moving out at first, this inventory accounting approach results in higher operational earnings and increased taxes.

2. LIFO— Here is an inventory approach where businesses move out or sell the product that’s purchased last. While this process is beneficial during inflation and sudden surges in prices, it has been officially banned by the IFRS or International Financial Reporting Standards. LIFO actually increases the trending costs of products, which in turn leads to lesser income taxes and lower operational earnings. As the older products are stagnated in this approach, LIFO often leads to obsolete inventory.

3. Specific Identification— Probably the most well-researched inventory accounting process, specific identification technique tracks the cost of each item and tallies the same with the one sold. This approach requires advanced levels of data tracking and works best with the pricier commodities.

4. Weighted Average— Here is a standalone inventory layer where the existing inventory costs are rolled along with the newer purchases and an average cost is determined. The average value can therefore be readjusted whenever newer products are added into the scheme of things.

Inventory accounting isn’t a straightforward process but can be simplified if the organizations hire functional and reliable accountants. Moreover, this approach works perfectly when it comes to assigning values to the existing inventory which actually helps categorize them as business assets. Lastly, it is important to select the best accounting technique based on the business requirements as having one in place can help maximize the revenue potential and simplify the entire process of taxation and record keeping.